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Rescue plan—up to $700 billion in play

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Paulson enjoys good ties with many lawmakers, but he is also asking for tremendous power — and a rather delayed schedule of reporting back to Congress. For example, the first report to Congress is “within three months of the first exercise of the purchase authority.” That could mean almost Christmas.

Paulson and Federal Reserve Chairman Ben Bernanke are slated to appear before the House Financial Services Committee on Wednesday, and Paulson has promised to work with lawmakers over the weekend to “flesh out the details” of the proposal. But the whole process is extraordinary in that the administration wants such quick action on such a large commitment for taxpayers.

After a dramatic Capitol meeting Thursday night, Paulson and Bernanke won pledges of bipartisan support. And true to this commitment, House Majority Leader Steny Hoyer (D-Md.) predicted Friday the full House will vote by the end of next week.

At the White House, President Bush said Saturday morning it was “necessary to get something done quickly” and predicted that Congress would do so.

"Look, I'm sure there are some of my friends saying, 'I thought this guy was a market guy — what happened to him?'" Bush said. "Well, my first instinct wasn't to, you know, lay out a huge government plan. My first instinct was to let the market work, until I realized, being briefed by the experts of how significant this problem became. And so, I decided to act and act boldly.

“It turns out that there's a lot of interlinks through the financial system. The system had grown to a point where a lot of people were dependent upon each other and a collapse of one part of the system wouldn't just affect a part of the financial markets, it would affect ... capacity to borrow money, to buy a house or to finance a college loan. It'd affect the ability of a small business to get credit. In other words, the systemic risk was significant, and it required a significant response. And Congress understands that, and we'll work to get things done as quickly as possible.”

Mindful of the huge financial commitment, Hoyer and other Democrats have been careful to underscore the fact that the massive government intervention is very much a “Bush administration” plan that the president and Republicans must own up to politically. And playing to the left in her caucus, Speaker Nancy Pelosi (D-Calif.) ended a party conference call Friday with a strong attack on the administration’s economic record.

For Republicans, it may be even more complicated, since just days ago many conservatives were in revolt over the government’s intervention to shore up the ailing insurance giant AIG at a price tag of just $85 billion. And Paulson has had his own troubles with the House Republican leadership in the past.

But thus far, House Minority Leader John A. Boehner (R-Ohio) has been supportive, and the more interesting tensions have been between different factions on the right.

Rep. Jeb Hensarling, a Texas conservative with leadership ambitions, has been among those most outspoken, skirmishing with Paulson in a party conference phone call. “My fear is that taxpayers will be left with the mother of all debts, the federal government becomes the lender and guarantor of last resort, and our nation finds itself on the slippery slope to socialism,” Hensarling said Friday.

But other conservatives have tempered their remarks. "What's going on right now is an education process," said Rep. John Campbell (R-Calif.), who is typically outspoken. "We need to take dramatic, complete and immediate action."

Some bargaining is sure to ensue between now and the House hearing Wednesday, and Paulson is already facing warnings from Democrats that the legislation must also deal with some relief for homeowners faced with foreclosure on their mortgages.

Senate Banking Committee Chairman Chris Dodd pledged that the bill should not be a “Christmas tree” filled with amendments. But the Connecticut Democrat said the bill must address the instability in the housing markets that helped trigger Wall Street’s woes and “bring to closure the foreclosure problem.”

At his news conference Friday, Paulson said the funding must be “sufficiently large to have maximum impact” but he was convinced “that this bold approach will cost American families far less than the alternative — a continuing series of financial institution failures and frozen credit markets unable to fund economic expansion.

Readers' Comments (284)

Why all this bickering over Obama vs McCain, Dem vs Republican? They are irrelevent. Your vote is irrelevent. The "unprecendented" actions taken by the Fed over the past 4 weeks should be bleeding obvious to everyone that BANKERS call the shots, not our puny elected officials. In less than two weeks, an unelected official of a private bank (the Fed) has added at least $5 TRILLION dollars to our national debt, WITHOUT A PUBLIC DEBATE OR VOTE. It took this country 232 years to amass a $5 trillion tab (Bush 2 contributed the most!). It took a maverick banker less than 24 hrs to DOUBLE our debt! AND NOW THEY WANT A $ TRILLION MORE!?! Call your representative today and tell them: "Don't use taxpayer money to bail out private businesses!" NO TRILLION $$$ "RESCUE" PLAN. Let the FED go down!! The FED is the problem. Fiat currency is the problem. By going along with these massive bailouts we are trading away a huge chunk of our sovereignty and personal freedom for a temporary bump in the DOW. These "unprecendented" actions are not being taken to protect YOU. The BANKERS are using our money to protect their monopoly on CONTROLLING the economy. If they allow this flim flam house of cards to fall, you and I will wake up and boot them out for good. Eliminate the Federal Reserve, NOW!

I say we should let these billionaires who have created this mess suffer. Bailing them out will not teach them a lesson it will only empower them to make more risky mistakes. Would i love to see someone in a nice suit on the side of the road holding a sign. Former billionaire will work for food.

How much money does Bush think we have. I have two wars going on now. We now have tax payers also paying off these banks. While the big heads of these baks collect million of dollars. Sad state we live in

The entitlement tsunami is a bigger problem facing this country in the future. Medicare, Medicaid, Social Security, and the new Drug program will have the same outcome as the rush to put everyone into a house they could not afford!

the mortgage crisis now puts U.S. taxpayers on the hook for well more than $1 trillion.

Guess again who's to blame for U.S. mortgage meltdown

Analysts point not to greed, but to social activist politics

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Posted: September 19, 2008

By Drew Zahn While many pundits are pointing to corporate greed and a lack of government regulation as the cause for the American mortgage and financial crisis, some analysts are saying it wasn't too little government intervention that cased the mortgage meltdown, but too much, in the form of activists compelling the government to pressure Freddie Mac and Fannie Mae into unsound – though politically correct – lending practices. 'Home mortgages have been a political piñata for many decades,' writes Stan J. Liebowitz, economics professor at the University of Texas at Dallas, in a chapter of his forthcoming book, Housing America: Building out of a Crisis. Liebowitz puts forward an explanation that he admits is 'not consistent with the nasty-subprime-lender hypothesis currently considered to be the cause of the mortgage meltdown.'

In a nutshell, Liebowitz contends that the federal government over the last 20 years pushed the mortgage industry so hard to get minority homeownership up, that it undermined the country's financial foundation to achieve its goal. 'In an attempt to increase homeownership, particularly by minorities and the less affluent, an attack on underwriting standards was undertaken by virtually every branch of the government since the early 1990s,' Liebowitz writes. 'The decline in mortgage underwriting standards was universally praised as 'innovation' in mortgage lending by regulators, academic specialists, (government-sponsored enterprises) and housing activists.'

He continues, 'Although a seemingly noble goal, the tool chosen to achieve this goal was one that endangered the entire mortgage enterprise.' 'As homeownership rates increased there as self-congratulation all around,' Liebowitz writes. 'The community of regulators, academic specialists, and housing activists all reveled in the increase in homeownership.'

An article in the Los Angeles Times from the late '90s praised the sudden surge in homeownership among minorities, calling it 'one of the hidden success stories of the Clinton era.'

John Lott, a senior research scientist at the University of Maryland, however, claimed in a Fox News article yesterday that the success came at a great price.

According to Lott, the Federal Reserve Bank of Boston produced a manual in the early '90s that warned mortgage lenders to no longer deny urban and lower-income minority applicants on such 'outdated' criteria as credit history, down payment or employment income.

Liebowitz' contention that lenders were under pressure to loosen their standards for racial and political goals was confirmed years ago by the companies at the heart of today's crisis: Fannie Mae and Freddie Mac. A New York Times article from Sept. 1999 states that Fannie Mae had been under increasing pressure from the Clinton administration to expand mortgage loans among low- and moderate-income people and that the corporation loosened its lending requirements to comply.

An ominous paragraph of the article reads, 'In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980s.'

Liebowitz likewise predicted in a 1998 paper the risk of sacrificing sound financial policy for social activism.

'After the warm fuzzy glow of 'flexible underwriting standards' has worn off,' Liebowitz wrote, 'we may discover that they are nothing more than standards that led to bad loans. … It will be ironic and unfortunate if minority applicants wind up paying a very heavy price for a misguided policy based on a badly mangled idea.'

And though some have speculated that lenders in the '90s dove into sub-prime mortgages in an effort to gouge new markets, the president and chief operating officer of Freddie Mac in 1999, David Glenn, confessed his company was pushed by a federal agenda.

'The mortgage industry intends to pursue minorities with greater intensity as federal regulators turn up the heat to increase home ownership,' Glenn said in his remarks at the annual convention of the Mortgage Banker Association of America.

'The federal government in the meantime has increased pressure on lenders to seek out minorities, as well as low-income groups and borrowers with poor credit histories,' Glenn said. 'Fannie Mae recently reached an agreement with the U.S. Department of Housing and Urban Development to commit half its business to low- and moderate-income borrowers. That means half the mortgages bought by Fannie Mae would be from those income brackets.'

In that same year, Freddie Mac warned of the logical pitfalls of pursuing loans on the basis of skin color and not credit history.

The Washington Post reported that the company conducted a study in which it was found that far more black people have bad credit than white people, even when both have the same incomes. In fact, the study showed a higher percentage of African Americans with incomes of $65,000 to $75,000 had bad credit than white Americans with incomes of below $25,000.

Such data demonstrated that when federal regulators demanded parity between racial groups in lending, the only way to achieve a quota would be to begin making intentionally bad lending decisions. The study, however, came under brutal attack in the U.S. Congress and was ridiculed with charges of racism.

A few years later, when Greg Mankiw, chairman of President Bush's Council of Economic Advisers, voiced a warning about weakened underwriting standards, Congress rebuffed him as well.

The Wall Street Journal quoted Congressman Barney Frank, D-Mass., in 2003 as criticizing Greg Mankiw 'because he is worried about the tiny little matter of safety and soundness rather than 'concern about housing.''

Frank, Chair of the House Financial Services Committee, rejected a Bush administration and Congressional Republican plan for regulating the mortgage industry in 2003, saying, 'These two entities – Fannie Mae and Freddie Mac – are not facing any kind of financial crisis.' According to a New York Times article, Frank added, 'The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.'

Torn between writing a lucid and objective dissertation about the current financial and economic situation facing the good old US of A, and venting my utter disgust with the conservative Republicans I (yes, I’ll say the word) BLAME for this mess.

OK. I give up.

I’m going to vent.

John McCain – Conservative Republican

This week.

To start the ball rolling he says, “The fundamentals of our economy are strong.”

Instead of either clarifying what he said with some true economic sense, he feebly claimed that what he really meant to say is that workers are the “fundamentals”, and that Obama may disagree with that.

Sarah Palin is charged with cronyism.

His main economic spokesperson said McCain helped create the miracle of the Blackberry.

Carly Fiorina said, “I don’t think John McCain could run a major corporation.”

John McCain said that fish swim around oil rigs because they love them.

Sarah Palin is charged with authoritarianism.

On Tuesday John McCain said NO! to an AIG bailout.

On Wednesday John McCain said YES! to an AIG bailout.

John McCain is roundly criticized for calling for a blue ribbon Washington DC commission to “investigate” the financial mess.

John McCain said if he were President he would “fire” the SEC Chairman, even though the President is constitutionally prohibited from firing the SEC Chairman.

The entitlement tsunami is a bigger problem facing this country in the future. Medicare, Medicaid, Social Security, and the new Drug program will have the same outcome as the rush to put everyone into a house they could not afford!

All the more reason to elect Obama. We need a less entrenched Prez that can get the job done. McCain is too old and set in his ways of same. He has no interest in economic policy and only cares about promoting neocon foreign policy.

While many pundits are pointing to corporate greed and a lack of government regulation as the cause for the American mortgage and financial crisis, some analysts are saying it wasn't too little government intervention that cased the mortgage meltdown, but too much, in the form of activists compelling the government to pressure Freddie Mac and Fannie Mae into unsound – though politically correct – lending practices.

Said part about this is that an attempt in 2003 was made to bring it under control! Read this article and you can see the problem was identified from the changes made to the Community Reinvestment act in the repeal of Glass-Steagull - Graham wanted this tightened up and Clinton wanted it loosened up - Clinton won because he threatened to veto Glass-Steagull repeal if this loosening up didn't occur. Would you place the link so I can keep it for future reference.

analysts are saying it wasn't too little government intervention that cased the mortgage meltdown, but too much, in the form of activists compelling the government to pressure Freddie Mac and Fannie Mae into unsound – though politically correct – lending practices.

Remember how bushies sold the iraq war to foolish and effete legislators of US? Yes, by instilling fear. Remember how Dick Cheney conned Dick Armey to vote for the war by talking about the miniaturized nukes ? This is the same thing. At this time Paulson and Bernanke used financial WMD to fool the american legislators. For paulson, most important part was to preserve Goldman (self-interest). American tax-payers are foolish to go along with this, because the rest of the world will soon stop financing american debt. A RACIST, gun-weilding america could soon descent to the type of ethnic-cleansing that we witness in other countries like rwanda or iraq. Days of american hegemony are over. China, Russia, India etc. are going to rule the 21st century. Move over foolish americans and your petty racism

By Drew Zahn While many pundits are pointing to corporate greed and a lack of government regulation as the cause for the American mortgage and financial crisis, some analysts are saying it wasn't too little government intervention that cased the mortgage meltdown, but too much, in the form of activists compelling the government to pressure Freddie Mac and Fannie Mae into unsound – though politically correct – lending practices.

Make Them Pay I advocate a new trade tax. If we invest trillions in these complex Wall Street, banking, debt, schemes without knowing their present equity, or the eventual value of these financial instruments, how do we guarantee a return for our blind, taxpayer, investment? I suggest a new trade tax. Each and every future transaction should be assessed a percentage of the transaction to be paid the federal government by the buyer and seller. This tax should be immediately deposited into a special Treasury fund that can be easily tracked. This is simple, transparent and more than fair. It's past time for the citizens on main street to get a return too.

Remember how bushies sold the iraq war to foolish and effete legislators of US? Yes, by instilling fear. Remember how Dick Cheney conned Dick Armey to vote for the war by talking about the miniaturized nukes ?

My goodness. I guess Joe Biden was conned (as you state) into being a leading Senator instilling fear about Iraq's WMD. He was a leading Senator lying to the american people about Iraq's WMD and the need to go into Iraq!

Remember how bushies sold the iraq war to foolish and effete legislators of US? Yes, by instilling fear. Remember how Dick Cheney conned Dick Armey to vote for the war by talking about the miniaturized nukes ?

My goodness. I guess Joe Biden was conned (as you state) into being a leading Senator instilling fear about Iraq's WMD. He was a leading Senator lying to the american people about Iraq's WMD and the need to go into Iraq!

You mean because he may have read the FABRICATED INTELLIGENCE that was used to catapult the propaganda?